CDI challenges TOC on binding arbitration for account-wagering rate

Churchill Downs Inc. has filed a suit against Thoroughbred Owners of California seeking to block the organization’s invocation of a state law that would put the two sides in binding arbitration over the amount that Churchill’s account-wagering company pays to Thoroughbred interests in the state.

The lawsuit, filed on Feb. 2 in U.S. District Court for the Central District of California, asks the court to immediately block TOC’s request for arbitration in the matter, alleging that the request is a violation of Churchill’s due-process rights under the U.S. and California Constitutions. The TOC filed the request for arbitration on Dec. 31, and the California statute governing the request requires the arbitration process to be completed within 60 days.

The lawsuit was filed amidst a staggering shift in pari-mutuel wagering from bricks-and-mortar sites to account-wagering services during the COVID-19 pandemic over the past 10 months. During this shift, competitors to Churchill Downs’s account-wagering operation, Twinspires.com, have increased their market share dramatically when compared to Twinspires.

The TOC acknowledged the receipt of the suit late on Wednesday but said its request for arbitration fell within its rights under state law.

“We intend to move forward with the hub-free arbitration in an expedited manner and believe the attempt to disrupt the arbitration by [CDI] with this last-minute federal lawsuit is without merit,” the TOC’s executive director, Greg Avioli, wrote to the organization’s members.

Churchill Downs says in its suit that it reached an agreement with Santa Anita Park on hub fees for wagers through Twinspires.com and another account-wagering operation it owns, BetAmerica.com, late last year, and, as required by law, that it provided a copy of the agreement to the TOC. The suit then states that Avioli “voluntarily requested” Churchill refund 0.9 percentage points of its fee for its 2020 betting activity.

Some horsemen’s groups have been pushing for higher rates at account-wagering companies during the pandemic due to the mass migration of wagers to the platforms. Because horsemen and racetracks receive a far larger share of the revenue from on-track wagering, which has dropped to a trickle during the pandemic, the two groups argue that account-wagering operators should pay a higher share to make up for the lost revenue.

The Churchill suit states that the TOC “threatened” Churchill Downs with the possibility of the arbitration request if it did not make the voluntary contribution.

“TOC is unhappy with the deal struck by Churchill Downs Technology and Santa Anita Park because it believes that Thoroughbred owners should receive more money even though these rates have been in place for almost a decade and California’s horse racing industry already retains a large majority of the revenue generated from online wagers,” the suit states.

The suit bases its request for injunctive relief on the legal opinion that the arbitration clause of California law invoked by the TOC violates several aspects of due-process and contract-law protections guaranteed by the U.S. and California Constitutions. Specifically, it states that the arbitration clause does not contain a “standard” for how the case should be adjudicated; that the clause does not contain any right to judicial review; and that the clause allows a “stranger” to a contract to dispute its terms.

“The statute forces two contracting parties into one of three untenable options: accept the lower rate proposed by a stranger to the contract, abandon the hub agreement based on the demand of a stranger to the contract, or proceed to binding arbitration with a stranger to the contract,” the suit states. It further states that invalidating the arbitration clause would “resolve the controversy.”

Account-wagering handle on California races jumped from $600 million in 2019 to $1 billion in 2020, according to earlier statements by the TOC. Of that amount, according to the TOC, 85 percent was wagered through TVG, a competitor to Twinspires that is now the largest account-wagering company in the U.S., by handle, due to a massive spike in wagering during the pandemic. In January, the TOC and California’s racetrack owners announced an “agreement” with several account-wagering companies, including TVG, that would result in higher purses.